Quote for the Week
The most remarkable feature of the bull market of 1982-87 was not its October meltdown. Rather, this bull market distinguished itself by its duration, magnitude and consistency. It lasted for five years, during which stock prices just about tripled, with only five negative quarters out of 20 and no corrections of as much as 10 percent…
What was the secret ingredient that kept investors buying and buying at higher and higher prices? Was it the myths that this market, like all bull markets, created to justify itself? Was it the belief that the Japanese were coming, that raiders paying stupendous prices knew value best, that buy-backs were a viable substitute for dividends, that portfolio insurance would save the day for risk-takers and, most typical of all, that bull markets always climb a wall of worry?
Although the myths helped keep the pot boiling, the basic explanation for the bull market’s longevity and vitality in the face of so much economic difficulty is simpler, more fundamental and more easily generalized. The same simple, fundamental explanation applies to the bull market’s sorry end as well.
The common thread that runs through all equity bull markets is confident expectations of higher earnings ahead. The common thread that ties the onset of all bear markets together is the loss of those confident expectations of higher earnings ahead. History shows that bull markets can go well beyond rational valuation levels as long as the outlook for future earnings is positive. — Peter Bernstein (source)
From the Archives
Last Call
- Market Risks – Humble Dollar
- Fighting the Last War – Safal Niveshak
- Valuations Matter. Just not the Way Wall Street Says. – C. Roche
- 92% of S&P 500 Companies have Lost Half Their Value Since 1999 – Portfolio Autopsy
- 11 Characteristics that Set Exceptional Businesses Apart – Master Investment
- Charlie Munger’s Interview with Todd Combs – Farnam Street
- Addressing Fear – S. Godin
- Claude, Don’t Touch My Lump – Experimental History
- 7 Comparisons Between the Universe and the Human Body – Big Think
- How Often Does David Actually Win Against Goliath? – Sheets Works